Investing a large sum. Is an investment advisor really needed?

Momo76

Dear All,
I recently came into possession of £500,000 which I plan to invest.
The best scenario would be a portfolio that can generate 4% (or more!) which can be withdrawn annually to help with living expenses. I realise of course that by withdrawing this amount, my capital would not appreciate that much over the years.
My question is:
- Should I go with an investment bank/ company that normally charge 1% to manage the portfolio and pick the equities
OR
- Should I simply buy 2-3 high performing funds/unit trusts (probably managed ones) and save the fee?
I know the question is general but any feedback would be appreciated. Thanks.

MK62

The problem is picking funds that will be "high performing" in the future.......;)

Just looking up which funds have performed best over the 1,3,5,7....10 years etc, isn't usually the best way to construct a balanced investment portfolio (though fair enough, there can be exceptions to the rule).

If you aren't an experienced investor, then at first I'd either

a).......stick with global multi-asset funds - there are several providers to pick from if you don't want all your eggs in a single basket, and various risk levels (usually the split between equities/bonds and sometimes property and other alternatives)....popular providers are Vanguard, HSBC, Blackrock etc, but there are plenty of others too.

b).......if not confident enough for that, engage a recommended IFA - even though it costs, if it saves you from making some poor investment decisions, it could be money well spent......


PS - it's not just beginners and inexperienced investors who make poor investment decisions either, but such investors are at a higher risk of doing so....at least imho.
PPS - I wouldn't go with an investment bank/company personally....imo, they charge too much for retail investors relative to the value they add....

george4064

To answer your questions;

Thread Title: In short, no. An advisor is not necessarily needed.

1. I would advise against going with a mainstream high street bank/investment company, most likely they will charge over the odds and only provide a restricted advice service.

2. Randomly picking the best performers is a very bad way to go about building a portfolio, you should be more methodical in your selection and think about risk vs return, diversification, asset classes etc.

Malthusian

Momo76 wrote: »

- Should I simply buy 2-3 high performing funds/unit trusts (probably managed ones) and save the fee?

Like Woodford investors did? That cost them a lot more than 1% a year.

SonOf

- Should I go with an investment bank/ company that normally charge 1% to manage the portfolio and pick the equities

Never go to a bank or tied sales force (FAs)
If you need advice then use IFAs.

- Should I simply buy 2-3 high performing funds/unit trusts (probably managed ones) and save the fee?

An awful way to buy investments and would almost certainly see you taking far more risk than you are likely to be comfortable with.

Portfolios need a structure and due diligence/research needs to be carried out. Either you do that or you pay someone to do it for you.

You also have tax wrappers to consider and annual bed & ISA, bed & pension, CGT allowances, rebalancing etc. All of which you can do or pay someone to do for you.

Linton

The problem with creating a portfolio of investments is that you should not be simply looking for high performing funds, but rather looking for a set of funds that together meet a number of objectives, in as far as it is possible:
1) Generate a steady 4%
2) Ensure that your income increases sufficiently to at least match inflation
3) Ensure that after withdrawing your income you never run out of money even in a major crash
4) Dont fail if some particular company, sector or country fails
5) Dont behave too wildly so that you lie awake at night worrying whether your investments will fail to satisfy(1)-(4).


To best satisfy these objectives you are unlikely to only need high performing funds. You may well wish to sacrifice some potential return to reduce risk by buying a proportion of lower performing but more reliable funds.

And if you think about it, you may decide you have other objectives such as legacies for your family or the ability to use significant sums for a new house, the occasional world cruise or whatever.

It is not just ensuring the income you need to be concerned about. Tax is another aspect on which you may need advice.

It is certainly not beyond an average numerate person's ability to gain the knowledge and experience to manage their own investments. However given where you are now do you want to gain that knowledge and experience on a pot of £500K?

Albermarle

The best scenario would be a portfolio that can generate 4% (or more!)

There have been a lot of studies on 'Safe Withdrawal Rates ' especially for newly retired people with a pension pot + other savings/investments.
The theory is that it is possible to take 4% of the original pot, and increase this amount with inflation each year, and then there is a reasonably high chance that the pot will last at least 30 years, and with some luck maybe not even be reduced all that much . Some more cautious types prefer 3.5% or even 3% and more ambitious types might go for 5% .
However it needs some careful managing and as said already it is not just about picking a few funds.

xylophone

Where is the money currently held?

You could consider NS&I Income bonds while you do some reading and research.

https://www.nsandi.com/income-bonds

https://forums.moneysavingexpert.com/discussion/5940676/sipp-investment-advice

If you are not comfortable with DIY, then you can seek advice

https://adviserbook.co.uk/

You can tick "confirmed independent" and other specialisms as required.

bostonerimus

The knowledge required to successfully manage your own money can be easily gained from books and the internet and the basic rules fit on the back of an index card. So, no, you don't need an IFA. Ive followed the principles of inexpensive DIY index tracker/multi-asset fund investing for the past 30 years which saved me from a lot of worry as I didn't have to make many difficult, tactical financial decisions.